Think tank dismisses impacts of tax concessions

A leading think tank has rejected the argument that abolishing superannuation tax breaks would significantly affect retirement savings, saying individuals who claim concessions would save the same amount regardless.

Speaking to AccountantsDaily's sister publication SMSF Adviser, Grattan Institute chief executive John Daley said there is consistent evidence both in Australia and internationally that high-income earners would save the same amount of money for retirement regardless of the tax incentives they are given.

“You can see that even in Australia people tend to save quite a lot outside superannuation even though it’s much less tax efficient,” Mr Daley said.

“The reason that high-income earners in particular save the same amount is that if you’re earning $150,000 a year as a household at the moment, then you’re not planning to live on the age pension at $30,000 a year.”

While tax concessions for superannuation do increase balances marginally, the extra amount in the fund is only the result of the tax people didn’t have to pay, Mr Daley said.

“Obviously the net amount they save is a bit larger because if I save $100, the super tax concessions on that mean the amount I have in the fund will be slightly higher than it would be otherwise, but the amount I’ve consumed and put away has not changed,” he explained.

This marginal increase in fund balances is the main reason many industry groups are in favour of tax concessions as slightly higher super balances generally mean they are able to collect higher fees.

“But if you look at the international evidence it’s pretty clear that tax incentives have very little impact on savings behaviour,” Mr Daley said.

“Now, I can understand why [the industry] makes these claims, it’s just there’s no evidence.”